Do consumers really want honest pricing?

Experience of StubHub and J.C. Penney suggests people like price tricks

Maybe consumers can’t handle the truth. We say we don’t want to be tricked by price-tag gimmicks and hidden fees, but companies find that when they’re up front and honest, they lose customers.

Three months after StubHub began including all of its fees in the ticket price, sales have slumped. The same thing happened following J.C. Penney’s short-lived experiment with “honest pricing.” Honesty, it seems, does not pay.

Ticket resale site StubHub, which was bought by eBay
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in 2007, now includes delivery and service fees in the advertised prices. But brokers report seeing drops in sales from around 15% to 50%, The Wall Street Journal reported Wednesday. Two tickets to the March 28 performance of “The Book of Mormon” on Broadway cost $338.40, including a $9.50 delivery fee and $29.90 service charge. Would these tickets be more appealing to customers if they were advertised at $299?

One reason for the fall in sales for concert tickets: It’s complicated doing reverse math — at first glance, prices simply seem to have gone up, says L.J. Shrum, professor of marketing at Hautes Études Commerciales de Paris, a business college in France.

StubHub introduced inclusive pricing first on Major League Baseball a year ago, and then introduced it for National Football League, National Basketball Association and National Hockey League games. In January, it eliminated hidden fees for concerts and all other sports. “We’d always anticipated a short-term adjustment period as fans got used to not having fees added at checkout,” says StubHub spokesman Glenn Lehrman. After MLB fans got used to the new pricing, he adds, those tickets have seen double-digit growth.

Studies show that consumers have a blind spot when it comes to hidden fees, says Vicki Morwitz, a professor of marketing at the Stern School of Business at New York University. “When firms separate surcharges from the base price, research shows that consumers do not fully notice them or integrate them into their estimates of total costs,” she says. “In the short run, I am not surprised that [StubHub’s new pricing] affected sales, since we know that price perceptions influence sales.”

Last year, J.C. Penney
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rehired former CEO Myron “Mike” Ullman to bring back the chains usual merry-go-round of discounts. One of his first tasks was reversing the decision of previous CEO Ron Johnson to end bargain-basement price tags ending in 99 cents. “We have unfortunately become used to being lied to,” says marketing consultant Martin Lindstrom, author of “Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy.”

To be fair, many people may not have realized that they were being tricked by fake discounts, says retail consultant Jeff Green. People also like going to Macy’s for the year-round sales that never appear to end, he says, which leads to several questions: When is a sale not a sale? And will bargain hunters every get sticker shock? “Macy’s is certainly making plenty of money, even though no one shops there for full-price goods,” he says.

But others say there’s a big difference between J.C. Penney’s or Macy’s perennial bargains and StubHub taking the higher ground on honest pricing. “People love to look at a sales dip and say, ‘Look, the research is wrong, that strategy doesn’t work,’” says behavioral scientist Matt Wallaert. “People are conditioned to expect certain things, and it takes time to help them move out of those habits.” StubHub has an opportunity to stand out among its peers, he says, but this will take time.

Airlines didn’t suffer a sales dip in 2012 when they included taxes and fees in advertised prices because they all did so at once, under Department of Transportation rules, says Christopher Elliott, author of “Scammed”. “It’s one thing to change a price by a penny – to $14.99 from $15 to make the item appear less expensive,” he says. “But when you’re quoting a fare of $160 and the actual fare revealed only at the end of the booking process is $230, people get upset and rightfully so.”

A bipartisan bill, the Transparent Airfares Act of 2014, introduced in the House this month, sees it differently. It wants to allow U.S. airline fare advertisements to state the base (lower) airfare and separately disclose government imposed taxes and fees. “This common sense bill will allow consumers to see the full breakdown of their ticket costs,” House Transportation and Infrastructure Committee Chairman Bill Shuster (R., Pa.).

Unlike their preference for J.C. Penney sales, however, consumers probably wouldn’t tolerate a return to airline prices that excluded fees, Wallaert says. “Can you imagine if Kayak and the other sites showed you just the ticket price, rather than baking in the taxes and fees associated with travel?” he says. “People are annoyed by hidden fees for a good reason.”

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